Why Home Prices Go Up During Summer
Home buyers will face higher home prices this summer, here’s why!
If you’ve been thinking about buying a home this year, you need to be prepared for higher home prices.
In this article, we’ll explain why home prices are increasing, and how you can make lemonade out of the lemons of a highly competitive market.
- Why Home Prices Are Going Up
- What’s So Special About Summer?
- Can Home Prices Drop?
- 3 Avoidable Homebuyer Mistakes
Why Home Prices Are Going Up
Real estate prices are very much a function of supply and demand economics. When there is a high supply of homes for sale, and few buyers in the market, home prices come down to attract more buyers.
The opposite is true when there are few homes for sale and many buyers in the market. With more home buyers making offers on each home, the result is a bidding war that drives up the sales price of that home.
Across America today, home prices are already increasing at a stomach turning rate because of a lack of homes for sale. Add to that, the fact that 2018 interest rates are the highest they’ve been since 2010
Higher home prices and higher interest rates combine to keep many home owners in their current home.
The most common reasons for selling a home in 2018 includes families moving out of State for work or a lower cost of living, divorce, growing families needing more room, and empty nesters right sizing after the kids have moved out.
Unless forced to move, home owners are simply staying put. Those owners putting their home on the market this summer can expect many offers, and a quick sale.
What’s So Special About Summer?
Now you understand why home prices are going up in general, so what’s so special about summertime? The answer is probably obvious to some people, because you’re the one driving home prices up!
If you’ve got kids, chances are you don’t want to pull them out of school in the middle of the school year. And there’s probably nothing more traumatic than inserting your son or daughter into a new school, and new classroom in the middle of a school year.
Dropping your kiddo into a new classroom in the middle of the year is like putting a huge “LOOK AT ME” sign on their back…not a good place to be for most.
That’s it? Yes, that’s pretty much it. Most home buyers with families will wait until summer vacation to move. That means more buyers looking for a new home between June and September each year.
Where I live in California, home owners see 80% of their annual equity increases happen during these three to four months. I suspect that this is the case throughout the rest of the Country as well.
More buyers means more competition. More competition means buyers are trying to offer more than the other offers, driving home prices up.
Can Home Prices Drop?
The short answer is YES! But it’s not for reasons that you want to hear….
In 2018, with the Federal Reserve pulling out of it’s almost decade long practice of manipulating interest rates, we’ve got nowhere to go but up.
What can make home prices drop? The most likely reason why prices could drop in 2018 is because of higher interest rates. As interest rates increase, what you can afford as a home buyer is reduced.
Here’s an example. If you qualify to buy a $250,000 home at a 4% interest rate. If interest rates increase to 5%, your max purchase price would be under $223,000!
When the cost of money increases, the amount you qualify for decreases…Does that make sense?
Other, less likely reasons for home prices dropping would include a massive recession, or a flood of homes for sale on the market. Neither of these threats seem to be on the horizon.
3 Avoidable Homebuyer Mistakes
Now that you know what to expect if you’re going to try to buy a home in the Summer months, let’s talk about ways that you can gain a competitive advantage over everyone else making an offer on your dream home.
The simplest way to gain a competitive advantage is to avoid making mistakes that can put you at risk of a long, and frustrating experience.
1. Falling for an Open House Trap
Working with a professional loan officer and real estate agent will give you a great advantage when making offers in a competitive market.
You do not want to be that person that got suckered into working with the agent they met at an open house, and then working with the loan officer that’s in cahoots with a rookie real estate agent.
It is not uncommon for inexperienced real estate agents to sit at open houses. A seasoned, professional real estate agent will rarely sit around at an open house. They usually send their trainees so that they can get experience.
As part of this training experience, you may also have a loan officer that is just getting started in the industry, trying to kick start their business.
Now, obviously, this is not the case with all real estate agents and loan officers that hold open houses. I’m not painting with a brush so broad that it covers every single person that holds an open house.
Whatever you do, avoid falling for high pressure sales tactics trying to convince you that the only way to get your offer accepted is to work with that agent or lender….it’s a TRAP!
2. Not Being Prepared to Make an Offer
The very first step is to get Pre-APPROVED. This is NOT a pre-qualification based on a preliminary conversation.
We are talking here about submitting a loan application, running your credit, reviewing your pay stubs and tax returns, and verifying your funds for down payment and closing costs.
I cannot stress enough the important of working with an independent, experienced mortgage professional. If you see a lender on TV or hear about them on radio, you’re talking to a telemarketer, NOT a professional.
Once you are pre-approved by a professional, you essentially have a blank check in the amount that your loan officer qualified you for, that you can use to make offers on homes that fall into the price range you’re qualified for.
This pre-approval, when presented by your real estate agent, tells the seller that you’re fully prepared to buy their home if they accept your offer.
The stronger the approval, the stronger the confidence that your real estate agent can relay when making your offer. You’re basically telling the seller, “if you accept my offer, we’ll be able to buy your home quickly, without any problems”.
That’s important to a home seller. And that give you a competitive advantage over any buyer that does cannot communicate that level of confidence of a smooth transaction.
In a highly competitive market, not having the ability to make a strong offer on the spot will put you at a huge disadvantage. Any delay in a highly competitive market could result in your dream home being sold to someone that was more prepared than you.
3. Not Hiring a Local Expert
Working with an experienced Realtor will put you two steps ahead of any home buyer that counts on the internet, Zillow, or some other self sourced method of determining the best way to make a competitive offer on your dream home.
Hiring a real estate agent that specializes in the community you’re buying in is absolutely key to securing an advantage over your competition. This means that your Realtor has intimate experience with the neighborhood you’re trying to buy in.
An experienced agent can also quickly identify if a home is priced right, priced high, or priced below market for the sole purpose of driving a large number of offers to push the price higher.
Working with an inexperienced, or out of town agent typically results in you making many more offers than you have to, and constantly being on the losing end of getting your offer accepted.
If you’ve made more than 5 or 6 offers and have not been close to getting one accepted, it might be that the agent is not making good offers on your behalf. Rookie mistakes will frustrate you to no end!
Set Yourself Up for Success
The absolute first step to buying a home is to get your financing ducks in a row before you start looking for home. This means working with a mortgage professional.
Once you find an expert loan officer that you trust, ask them for an introduction to a local real estate agent that they trust. Even if the loan officer is not from the community that you’re buying in, they will still be able find an agent that rises to the level of professionalism you deserve.
Not sure where to find a professional loan officer that you can trust? You’re in the right place!
If you have any questions or comments about this topic, feel free to leave a comment below, or you can shoot me an email at firstname.lastname@example.org.
Now sure how to identify a professional loan officer? Watch these expert interviews I’ve done with professional loan officer friends of mine.
I firmly believe that once you hear how a professional loan officer communicates, it will help you to avoid silly mistakes and errors that are common with inexperienced or uneducated loan officers.